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Portfolio Management Service - Helps to create Wealth

Investors can use the services of professional portfolio managers if they cannot set aside enough time to manage their investment portfolios themselves



It's quite natural to want to grow one's money. But the process for achieving this simple goal is actually rather intricate, and requires experience and expertise. Preserving and growing capital is as difficult as earning it. In the last four years, we have seen favorable markets. But the recent crash has certainly taught us a significant lesson.



Investing is a full-time activity that entails timely flow of information, and requires thorough understanding and sharp execution skills. When the markets were buoyant, many investors turned into self styled fund managers. But the dangers of this are comparable to self-medication. It would be tragic if they were understood only after incurring a huge cost, like seeing one's portfolio shrunken to half the invested capital.



The way to avoid such a problem is through disciplined investing, selecting the right product, and hiring the right investment manager. For investors who would like to build a quality portfolio, rather than buying stocks on 'tips' and hearsay, the best option is to approach a company that offers portfolio management service (PMS) and let it manage their portfolio.



Discretion

PMS has caught investors' fancy since 2002, when investor-friendly changes were made to the rules governing capital gains tax, setting stocks on par with mutual fund investments. Currently, there are over 200 portfolio managers registered with the market regulator, Securities and Exchange Board of India (SEBI), offering discretionary and non-discretionary PMS products to clients.

Discretionary PMS allows the company to manage the portfolio on behalf of the client, based on the authority given by the client. Non-Discretionary PMS means that the portfolio manager can only advise the client, and the final call to buy a particular stock comes from the investor - in other words, the ultimate discretion lies with the investor.



Formats

Broadly speaking, portfolio managers follow one of two formats. One is the 'pool' format, and the other is the 'direct account'.

In the pool format, every client does not have a separate demat and broking account; rather, they are opened for the portfolio scheme as a whole. They accept funds from investors in the scheme, which are then internally allocated to each individual client account, and each account is managed independently.

This structure should not be confused with mutual fund schemes - in PMS, cash and stocks for each client are managed individually, while in mutual funds, the resources are pooled and performance is linked to the fund's NAV.



The other portfolio management format is the 'direct account'. Here, a separate bank, demat and broking account are opened in the name of each client. The portfolio manager takes up the authority, normally through a power of attorney, specifically to manage the client's portfolio-related accounts.



Benefits

Portfolio management services offer great flexibility to investors. They offer various products to suit the requirements of a diverse set of clients. A PMS can help you, the investor, build a customized and focused portfolio, with a fund management approach that suits your mandate and risk appetite. It offers greater flexibility in holding cash, allocating investments across sectors, and adjusting for market trends.



If you are an investor with limited resources in terms of the knowledge and skills necessary to manage your investments, why risk your hard-earned money in stock markets that you do not fully understand? PMS allows you to hold stocks directly in your own name, while also offering professional portfolio management.



A portfolio management scheme will start out by first making a careful assessment of your personal situation and investment objectives. Based on factors such as investment horizon, return expectations, and risk tolerance, you can select a service that fits your personal requirements. No matter which service you choose, make sure you understand your portfolio manager's thought process, and the organization’s research and fund management capabilities.



There is a common misconception that portfolio management is exclusively for high net worth individuals. But, in fact, many PMS products are offered by asset management companies and brokerage houses, for portfolios as small as Rs 5 lakhs. There is also a wide range of fee structures, ranging from fixed charges to performance-linked ones. So be sure to explore and understand your options before signing up.



Most portfolio managers offer clients online access, which allows you to view your portfolio details - holdings, performances, transactions, bank details, and so on.

To sum up, the recent market crash and ongoing volatility have underscored the need for professional management of our investments. It is prudent to entrust fund management to an experienced and quality portfolio manager, who can help you build a superior portfolio and hedge against adversity.

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